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What Happens If the Federal Exchange Subsidies Go Away?

Best & Worst States for Unsubsidized Healthcare.gov Insurance Buyers

Introduction

Data from the first month of the Affordable Care Act’s 2015 enrollment season indicated that 87% of Healthcare.gov consumers who selected health insurance plans shall receive monthly premium subsidies.1 These premium subsidies are substantial and conceal much of the cost of health insurance to the enrollee. Based on the government’s data on 2014 enrollees, enrollees paid only 24% of their premium amount on average after subsidies were applied.2 In terms of dollars, this represented a drop from $346 to $82 monthly and from $4,152 to $984 annually.

The legality of subsidies obtained on Healthcare.gov (the federal exchange) is under challenge, most notably in King v. Burwell. To be heard by the Supreme Court in 2015, the plaintiffs in this case argue that the statutory language of the Affordable Care Act only allows subsidies to be provided "through an Exchange established by the State."3Should the Supreme Court rule in favor of the plaintiffs in King v. Burwell this year,4 premium subsidies (as well as out-of-pocket cost subsidies) would presumably disappear in the 37 states5 that do not use a state-based exchange and, instead, depend on the federal exchange, Healthcare.gov, for their health insurance marketplace.

Given the possibility that subsidies could be limited to health plans purchased on state-based exchanges, HealthPocket examined the potential premium and deductible consequences of unsubsidized insurance in each of the states depending on Healthcare.gov.

Premiums

Premium subsidies are available on exchanges to insurance enrollees making between 100% and 400% of the Federal Poverty Level (FPL) when their unsubsidized premium exceeds a predetermined percentage of income.6 The loss of premium subsidies would have multiple effects for consumers who purchase their health insurance in states using the federal exchange. Aside from an anticipated increase in the uninsured population,7 there is also the matter that the unsubsidized premiums would likely affect health plan selection trends. Silver plans were the most common health plan selection on the federal exchange8 (where most enrollees have premium subsidies) during the initial Affordable Care Act enrollment period. In contrast, an analysis of over 200,000 off-exchange applicants from the same enrollment period revealed that the bronze plan was most popular among unsubsidized enrollees who used a major online health insurance broker.9 As the entry-level Affordable Care Act plan, the bronze plan has lower premiums than silver plans while still providing enrollees with the same ten Essential Health Benefits categories.

Based on the bronze plan popularity among unsubsidized consumers, HealthPocket compared bronze plan premiums in every state using the federal exchange to illuminate the potential change in the premium landscape for those consumers at risk for losing subsidies. Premiums were based on a 40 year-old nonsmoker applicant profile. While HHS has not revealed the average age of exchange enrollees, it has shared some demographic information including data that approximately half of enrollees were under age 45 with the remainder being between 45 and 64 years old.10 HealthPocket collected premium data from the government in the two largest metropolitan regions of each state using the federal exchange.

Average Bronze Plan Premium for 40-year Old Nonsmoker in Federal Exchange States

Average premium: $294 a month

State

Average Monthly Premium

New Mexico

$209.42

Oregon

$228.91

Arizona

$232.92

Utah

$245.47

Tennessee

$245.96

Michigan

$248.09

Arkansas

$248.93

Montana

$253.80

Nevada

$256.15

Pennsylvania

$262.68

Kansas

$263.46

Iowa

$265.56

Texas

$269.40

Maine

$272.09

Illinois

$279.42

Oklahoma

$280.60

Alabama

$284.83

Missouri

$285.98

North Carolina

$287.57

Georgia

$289.42

Nebraska

$292.41

New Hampshire

$296.89

Virginia

$302.60

North Dakota

$302.72

Florida

$306.03

Mississippi

$308.13

Louisiana

$309.64

Ohio

$313.19

Indiana

$331.21

South Carolina

$331.61

South Dakota

$332.09

Wisconsin

$333.89

West Virginia

$335.13

New Jersey

$335.23

Delaware

$336.06

Wyoming

$425.29

Alaska

$474.40

While the anticipated migration from silver plans to bronze plans would lessen the premium increase for consumers if they lost subsidies, they would still pay thousands more for health insurance annually. The average bronze plan premium for a 40 year-old living in a state at risk for subsidy loss is $294 a month, $3,528 annually. Among states using the federal exchange, New Mexico had the lowest average bronze plan premium at $209 a month. Alaska, in contrast, had the highest average bronze plan premium at $474 a month.

The bronze plan premium average for a 40 year-old is 15% below the average pre-subsidy cost of plans chosen on the exchange (which are predominantly silver plans for an unspecified average age). However, this amount is still over two and a half times the amount of the average subsidized premium on the federal exchange.

Some analysts have predicted that the loss of premium subsidies would make young adults more likely to discontinue health insurance, which would adversely affect risk pools and drive up premiums.11 However, the potential effect of subsidy loss on young adult enrollment is far from clear. An analysis of premiums in eight cities across the U.S. found that subsidies found many instances where 18-34 year olds within the income range for premium assistance would pay full cost because their premium amounts were below the minimum percentage of income required to trigger a subsidy. The study found the income range for obtaining subsidies 41% smaller for young adults when compared to the Affordable Care Act’s 100% to 400% FPL guidelines.12 While the government indicates 13% of 2014 enrollees on the federal exchange did not receive subsidies, it is unclear from available data whether this unsubsidized group had a disproportionate representation of young adults. Additionally, there has been an erosion of Affordable Care Act coverage during the year as nearly one-out-of-five enrollees have discontinued coverage or never effectuated it.13 As was the case for determining the representation of young adults among the unsubsidized, the available data on enrollment erosion does not clarify the representation of young adults among those who discontinued coverage or let it lapse.Finally, 4%-5% of young adults who bought health insurance on the federal exchange are enrolled in catastrophic plans that are ineligible for premium subsidies.14

Deductibles & the Loss of Cost-Sharing Subsidies

While attracting less attention than the matter of premium subsidies, cost-sharing subsidies are also at risk with respect to the King v. Burwell case.15 These subsidies reduce the cost of deductibles, coinsurance, and copayments for covered medical services. The cost-sharing subsidies are available for enrollees with incomes between 100% and 250% of the Federal Poverty Level16 but are only accessible within cost-sharing reduction silver plans.17If cost-sharing subsidies are eliminated for federal exchange states then not only will deductibles, copayments, and coinsurance be paid at full price for people previously enrolled in cost-sharing reduction silver plans but it is likely that cost-sharing will often be defined within the context of the entry-level bronze plan (which averages the highest out-of-pocket costs for enrollees) for those who continue health insurance coverage.18

Using the same bronze plans examined within the premium comparison, HealthPocket compared the average bronze plan deductibles within the states at risk for losing cost-sharing subsidies.

Average Bronze Plan Deductible in Federal Exchange States

Average deductible: $4,828

State

Average Deductible

New Jersey

$2,500.00

South Dakota

$3,607.41

West Virginia

$4,356.67

Oregon

$4,580.14

North Dakota

$4,597.44

Iowa

$4,650.00

Indiana

$4,675.86

Montana

$4,684.00

Wyoming

$4,748.53

Louisiana

$4,769.91

Utah

$4,789.83

North Carolina

$4,795.75

Alaska

$4,816.30

Oklahoma

$4,824.04

Virginia

$4,845.00

Nebraska

$4,865.91

Tennessee

$4,873.53

Nevada

$4,894.79

South Carolina

$4,914.04

Mississippi

$4,926.44

New Hampshire

$4,931.48

Missouri

$4,932.00

Arkansas

$4,995.19

Georgia

$5,033.22

Maine

$5,047.06

Alabama

$5,049.07

Michigan

$5,064.18

Ohio

$5,107.05

Illinois

$5,118.06

New Mexico

$5,141.67

Texas

$5,151.70

Kansas

$5,155.36

Florida

$5,170.77

Wisconsin

$5,175.94

Pennsylvania

$5,223.33

Arizona

$5,280.13

Delaware

$5,355.88

The average bronze plan deductible amounts in the 37 federal exchange states averaged $4,828. This average for bronze plans in federal exchange states is over two and a half times larger than the entry level definition of a high-deductible health plan.19 Likewise, it is also multiple times higher than the average deductible associated with employer-provided health insurance.20

The lowest bronze plan deductible average was found in New Jersey ($2,500). New Jersey’s low deductible, slightly more than half of the average amount seen in other states, reflects its status as the only state capping individual health insurance deductibles at $2,500.21 Delaware had an average bronze plan deductible of $5,355, which was highest among federal exchange states. Delaware’s deductible average was over twice the amount of New Jersey’s average and 11% higher than the average across all states using the federal exchange.

The amount of the average bronze plan deductible also stands in stark contrast to Americans’ resources for medical expenses. A recent BankRate survey indicated that more than three-out-of-five Americans have insufficient savings to cover a medical emergency costing as little as $1,000.22 However, it should be noted that the presence of a high deductible does not mean that the full deductible amount will be spent by an individual. Healthcare out-of-pocket costs are driven by people’s health status and medical events, which are highly individual. The healthy may pay little to nothing in annual healthcare out-of-pocket costs while the more sickly can pay thousands or more. The government estimates that per capita out-of-pocket healthcare spending to average nearly $1,100 in 2015.23

HealthPocket combined the annual costs for bronze plan premiums with their deductible amounts to determine the financial exposure facing insurance buyers if premium and cost-sharing subsidies were lost after the case King v. Burwell is decided.

CONCLUSION

How the Supreme Court will decide the King v. Burwell case is far from clear.Should the plaintiffs in the case prevail nearly five million24 Americans in 37 states will face the prospect of Affordable Care Act health insurance coverage without the benefit of premium and out-of-pocket cost subsidies.

In the event subsidies are eliminated for states using the federal exchange, HealthPocket expects that the consumers who retain exchange health insurance will opt for bronze plans during the next available enrollment period. While this expected migration towards entry-level bronze plans would blunt some degree of the premium increase, bronze plans would still present a dramatic growth in healthcare costs for those who had previously enjoyed subsidies. Moreover, consumers moving silver to bronze plans would also see an increase in out-of-pocket charges at the same time that cost-sharing subsidies are eliminated for those making 250% FPL or less.

When reviewing the financial liability represented by annual bronze plan premiums plus deductibles, it is clear that the loss of premium and cost-sharing subsidies would not affect federal exchange states equally. When comparing the five exchange states with the highest premium and deductible expense estimates to the five exchange states with the lowest expense estimates, there is a 30% difference in expenses.

Least Expensive States

State

Total Premiums + Deductible

New Jersey

$6,522.77

Oregon

$7,327.07

South Dakota

$7,592.52

New Mexico

$7,654.67

Montana

$7,729.60

Average

$7,365.33

Most Expensive States

State

Total Premiums + Deductible

Alaska

$10,509.13

Wyoming

$9,852.06

Delaware

$9,388.59

Wisconsin

$9,182.58

South Carolina

$8,893.30

Average

$9,565.13

Should King v. Burwell result in the elimination of subsidies for states using the federal exchange, questions will be raised about the affordability of health insurance for those who had been receiving subsidies. Likewise, equally valid questions will be raised about the affordability of the same health insurance for those who currently do not qualify to receive subsidies, especially given the fact that the transition from the pre-reform to Affordable Care Act individual insurance market has been marked by a dramatic increase in the average premium for unsubsidized insurance.25

These two populations, the subsidized and the unsubsidized, illustrate not only the conflicting constituencies to whom politicians will be accountable if subsidies are lost but also the challenges facing the acceptance of the Affordable Care Act given that the benefits and costs of health reform changes have been unequally distributed across the population. However, should politicians use the aftermath of subsidy loss to seriously attack the issues driving health insurance costs (e.g. behavioral issues affecting healthcare utilization, barriers to healthcare competition, lack of price transparency in healthcare, etc.) then there is the possibility of more Americans benefiting from health reform efforts.

METHODOLOGY

2015 bronze plan premium and deductible averages included both on- and off- exchange plans that were available to 40 year-old nonsmokers in the two largest metropolitan regions in each of the 37 states that utilize the federal exchange, Healthcare.gov, for their health insurance marketplaces.

Health plan premium and deductible data was obtained from insurance records made public by the Department of Health & Human Services (HHS) and collected by HealthPocket from HHS on January 13, 2015.

This analysis assumes that the underlying government data is accurate. No bronze plans available in the HHS data for the regions examined were excluded. While every effort was made to use a comprehensive collection of plans, HealthPocket makes no representation that every plan in the individual insurance market or in an individual state was included in this analysis.

All plans investigated in this study belong to the individual & family insurance market. Medicare, Medicaid, short-term health insurance, and group health insurance plans were not analyzed as part of this study.

Industry standard rounding methods were utilized.

No weighting by health plan enrollment was performed.

AUTHOR

This study was written by Kev Coleman, Head of Research & Data at HealthPocket. Correspondence regarding this data can be directed to Mr. Coleman at kevin.coleman@healthpocket.com.

Data Journalism

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